Oil over $101 on US supply drop, Egypt

NEW YORK (AP) -- The price of oil rose above $102 a barrel for the first time in 14 months on concerns about Middle East supplies and signs of an increase in U.S. demand for fuel.

Around midday Wednesday, U.S. benchmark oil was up $1.63 to $101.23. It rose to $102.18 a barrel earlier, a high since May of last year. Oil has not closed above $100 since May 3, 2012.

Brent crude, which is used to price oil used by many U.S. refineries to make gasoline, rose $1.67 to $105.67.

The Energy Department reported Wednesday that U.S. crude supplies fell by 10.3 million barrels from the previous week, more than three times the drop that analysts had expected.

The drop was likely the result of reduced supplies from Canada because of a temporary pipeline shutdown there, as well as increased demand from a BP refinery that restarted in Indiana. But the drop could also be an indication that U.S. demand is rising.

At the same time, traders were worried that political upheaval in Egypt could slow the flow of oil from the Middle East to world markets. Embattled Egyptian President Mohammed Morsi vowed not to resign ahead of a deadline to yield to the demands of millions of protesters. The Egyptian military has threatened to suspend the constitution, disband parliament and install a new leadership.

On the streets, the sense that both sides are ready to escalate the dispute sharpened, with clashes between Morsi's supporters and opponents killing at least 23 people, most of them in a single incident of fighting outside Cairo University.

Egypt is not an oil producer but its control of the Suez Canal, one of the world's busiest shipping lanes, gives it a crucial role in maintaining global energy supplies. The Middle East accounts for about a quarter of the world's crude oil output, or 23 million barrels per day. About 2 million barrels of that, or 2.2 percent of world demand, are transported daily through the Suez Canal, which links the Mediterranean with the Red Sea. Much of that oil is headed to Europe, but a supply drop anywhere in the world leads to higher prices everywhere.

Some analysts suggested market reaction to the political crisis in Egypt was exaggerated.

"Each time there is a bit of confusion in Egypt there will be calls that a geopolitical premium needs to be added to oil because of the risk to the Suez Canal," said Olivier Jakob of Petromatrix in Switzerland. "But if there is one thing that the military has control of in Egypt it is the Suez Canal. We therefore do not see a significant risk for free passage on the waterway."

The Suez Canal Authority, which operates the waterway, said it "has all the authorities needed for running the Canal without being limited by the laws and the systems of the (Egyptian) government."

The rising price of oil could end what has been a streak of 21 days of lower U.S. retail gasoline prices. The average U.S. retail price fell less than a penny Wednesday to $3.48 per gallon.

Analysts do not think the spike in oil prices will lead to sharply higher gasoline prices, though, because U.S. crude supplies remain high and refineries are turning out plenty of gasoline.